Microsoft Corp. (Nasdaq:MSFT) announced on Friday that Steve Ballmer, the company's chief executive officer since 2000, has decided to retire within the next 12 months.

“There is never a perfect time for this type of transition, but now is the right time,” Ballmer said in a Microsoft press release. “We have embarked on a new strategy with a new organization and we have an amazing Senior Leadership Team. My original thoughts on timing would have had my retirement happen in the middle of our company’s transformation to a devices and services company. We need a CEO who will be here longer term for this new direction.”

Microsoft's Board of Directors has already created a special committee to direct the succession process, which includes Microsoft founder and chairman of the board Bill Gates, Audit Committee chairman Chuck Noski and compensation committee chairman Steve Luczo, and is chaired by John Thompson, the board's lead independent director. The committee will work alongside Chicago-based recruitment firm Heidrick & Struggles to help consider the best external and internal candidates for Microsoft's next CEO.

“The board is committed to the effective transformation of Microsoft to a successful devices and services company,” Thompson said. “As this work continues, we are focused on selecting a new CEO to work with the company’s senior leadership team to chart the company’s course and execute on it in a highly competitive industry.”

Bill Gates said he plans to "work closely with the other members of the board to identify a great new CEO."

Ballmer, a Detroit native who became the second CEO of Microsoft after Bill Gates relinquished the position he held since 1975, was the first business manager hired by Gates in 1980. Following Microsoft's incorporation in 1981, Ballmer went on to head several Microsoft divisions, including operations, operating systems development, sales and support. He was president of Microsoft from July 1998 to February 2001, but as CEO, Ballmer helped Microsoft increase its annual revenue from $25 billion to $70 billion by expanding the existing Windows and Office franchises and introducing divisions for data centers, devices and entertainment, particularly the lucrative Xbox brand.

In recent years, however, Ballmer has been accused of stunting Microsoft's growth. Former VPs have blamed Microsoft's current CEO for a few notable departures within the company, including Kevin Johnson, who ran Microsoft's online division but went to manage Juniper Networks; Stephen Elop, who went on to become CEO of Nokia; and Ray Ozzie, who, although Bill Gates had personally christened him as Microsoft's next "big-picture" guy, decided to leave to start his own project, a mobile communications start-up called Talko.

Recently, longtime Windows chief Steven Sinofsky decided to part ways with Microsoft in November shortly after launching Windows 8. Even though some cited Sinofsky's "relentlessly aggressive" style as a reason for his departure, former Microsoft VP Joachim Kempin notably mentioned how Ballmer made it very difficult to "breathe on the top."

"Steve is a very good business guy, but make him a chief operating officer, not a CEO, and your business is going to go gangbusters," Kempin said. "I respect that guy (Ballmer), but there are some limitations in what he can and can't do and maybe he hasn't realized them himself."

Ballmer, according to critics, was a big factor behind a number of recent company failures, including its maligned Surface tablet, its botched launch of Windows 8, and its inability to innovate faster than its rivals at Apple Inc,. even though tablets were reportedly on Microsoft's agenda more than a decade ago.

"They missed all the opportunities they were talking about when I was still in the company," Kempin said. "Tablets, phones ... We had a tablet going, we had tablet software when Windows XP came out [in 2001], it was never followed up properly."

Kempin's critique of Ballmer was echoed by David Einhorn of Greenlight Capital in 2011, who said of the 10-year Microsoft CEO, "His continued presence is the biggest overhang on Microsoft stock."

Ballmer wrote the Microsoft staff a farewell letter, which was also released on Friday. Here it is in full:

“I am writing to let you know that I will retire as CEO of Microsoft within the next 12 months, after a successor is chosen. There is never a perfect time for this type of transition, but now is the right time. My original thoughts on timing would have had my retirement happen in the middle of our transformation to a devices and services company focused on empowering customers in the activities they value most. We need a CEO who will be here longer term for this new direction. You can read the press release on Microsoft News Center.

This is a time of important transformation for Microsoft. Our new Senior Leadership team is amazing. The strategy we have generated is first class. Our new organization, which is centered on functions and engineering areas, is right for the opportunities and challenges ahead.

Microsoft is an amazing place. I love this company. I love the way we helped invent and popularize computing and the PC. I love the bigness and boldness of our bets. I love our people and their talent and our willingness to accept and embrace their range of capabilities, including their quirks. I love the way we embrace and work with other companies to change the world and succeed together. I love the breadth and diversity of our customers, from consumer to enterprise, across industries, countries, and people of all backgrounds and age groups.

I am proud of what we have achieved. We have grown from $7.5 million to nearly $78 billion since I joined Microsoft, and we have grown from employing just over 30 people to almost 100,000. I feel good about playing a role in that success and having committed 100 percent emotionally all the way. We have more than 1 billion users and earn a great profit for our shareholders. We have delivered more profit and cash return to shareholders than virtually any other company in history.

I am excited by our mission of empowering the world and believe in our future success. I cherish my Microsoft ownership, and look forward to continuing as one of Microsoft’s largest owners.

This is an emotional and difficult thing for me to do. I take this step in the best interests of the company I love; it is the thing outside of my family and closest friends that matters to me most.

Microsoft has all its best days ahead. Know you are part of the best team in the industry and have the right technology assets. We cannot and will not miss a beat in these transitions. I am focused and driving hard and know I can count on all of you to do the same. Let’s do ourselves proud.

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